The National Energy Regulator of SA (Nersa) on Tuesday published a review of its Renewable Energy Feed-In Tariff (REFIT) proposing a 25% decrease in the tariff for wind power projects.
In addition, the tariffs were no longer fully indexed to inflation, which means an effective drop of 50%.
“The review comes as a blow to renewable energy project developers and investors as there has been no indication that the rate would be revised just weeks before the Department of Energy, together with National Treasury, is expected to issue a request for proposals for renewable energy projects,” said Kilian Hagemann of G7 Renewable Energies on Wednesday.
“This is very concerning for all stakeholders in the renewable energy industry, and particularly for private investors, both local and international,” he added.
“There has been significant interest and investment in SA's renewable energy industry, but the business and financial models behind this are based on the feed-in tariffs of 2009.
“What kind of message does revising the tariff at this late stage, without prior notification of an intention to do so, send to investors?”
Hagemann said the move created an environment of uncertainty, which meant higher risk for investors.
“This will lead them to require higher returns on their investments, or simply withdraw from the market altogether.”
He added that the nascent renewable energy industry had already spent more than 200 million rand on developing projects across the country in various technology fields (wind, solar, biomass etc) and this had been done on the basis of the 2009 tariffs.
“Not one of these projects has been awarded a 20-year power purchase agreement under the 2009 tariffs, and the proposed tariff amendments would now render the majority of these projects suddenly infeasible.
“The investors who poured in the resources to ultimately create thousands of sustainable jobs will receive such a shock that they might never return.
“Implementation of new technology for the first time on a large scale in a new country includes significant risks for investors. An attractive up-front profit margin is required in order to make the investment worthwhile, and the revised tariff will impinge on that significantly,” said Hagemann.
He added that the REFIT had been designed as a mechanism to attract private investors to participate in the early stages of market development and thereby lead to a sustainable renewable energy industry.
“The likely result of the decision by Nersa to abruptly revise down tariffs will defeat the original REFIT objectives. It is a counter-productive exercise, which will lead to loss of currently committed and future investments, and trust in SA's ability to create an enabling environment.”
According to Hagemann, a workable solution would be to keep the tariffs as they were for the first 1,025MW of renewable energy generators to be procured, and then have a discussion around revising the tariffs for the next round of procurement. - I-Net Bridge